China copyright law

Okay, maybe not spectacular. But definitely real.

An article in yesterday’s Wall Street Journal, How a Plague on the Movie and Music Industries Became Their Chief Protector in China: Chinese search giant Baidu’s transition to creator and buyer of content has changed its priorities, sums up the change that is happening with China IP protection and enforcement:

Chinese search giant Baidu Inc. BIDU 3.47% was once a scourge of Hollywood and the U.S. music industry, which accused it of being a pipeline for pirated content.

Today when Baidu is involved in a copyright infringement case, chances are it is the one casting the blame.

Baidu’s about-face in the copyright fight reflects its emergence as a creator and buyer of content, a transition that continued recently when the company struck a deal to license original shows from Netflix Inc. NFLX 0.85% Other Chinese media companies are undergoing similar transformations, upending how entertainment is protected in the world’s second-largest economy, legal analysts say.

This article quotes Mathew Alderson, our lead China media and entertainment lawyer on how intellectual property protection in China is moving from something that was formerly done to make foreign companies and governments happy to something China now sees as economically important.

“One of the old rationales for copyright protection…is that it provides an incentive to invest. We are seeing that in play here in China,” said Mathew Alderson, a partner and entertainment lawyer at Harris Bricken in Beijing. “Copyright is no longer something imposed on China by the U.S. It is now a tool in Chinese hands.”

The Wall Street Journal notes that in the last ten years China’s courts have seen a 15-fold increase in copyright-related lawsuits:

One way to measure the change is by the escalating flood of lawsuits aimed at protecting intellectual property.

Nearly 87,000 copyright-related cases were filed in China last year, according to data compiled by China’s Supreme People’s Court, a 15-fold increase from 2006. These cases include claims of illegal distribution, or unauthorized reproduction, of written content, videogames, movies and TV shows.

And here’s the point that stems from this massive increase in copyright lawsuits in China: the companies that are bringing these lawsuits are not doing so for their health. They are spending time and money on these lawsuits because they believe that the economic rewards from doing so will be greater than their costs. They have rationally decided that China’s enforcement of its copyright laws warrants this conclusion.

All this is leading to big changes in how Hollywood and Western TV studios are handling their content these days, with most of them choosing to license their content to Chinese companies (like Baidu and Tencent), rather than work at getting that content into China on their own:

For Hollywood studios, striking deals with Chinese partners is much easier than trying to defend their copyrighted content on their own, said Eric Priest, a University of Oregon School of Law professor who researches copyrights and the Chinese entertainment industry.

“If you’re a content producer with an office in Hollywood, you aren’t going to be familiar with where Chinese netizens are getting unlicensed content,” Mr. Priest said. “You won’t be familiar with the shadowy set-top manufacturers who are installing apps that people buy that allow direct access to unlicensed content. You’re going to be much better off with a partner in China that can do that.”

 

Also just last week, a Beijing court awarded Tencent more than US $1 million in damages in a copyright infringement case. The defendant in the case was Baofeng Technology, a high-profile streaming site and manufacturer of VR hardware. Baofeng has been found liable for copyright infringement numerous times previously (including for unauthorized distribution of films, television, and the most recent World Cup), but that’s surely in part because it’s so visible. After its 2015 IPO on the Shenzhen exchange, Baofeng soared to a valuation of more than US$8 billion, and although its current valuation is closer to US$1 billion, it is a real company, with real assets.

In the case decided last week, Baofeng was found to have streamed the first 6 episodes of season 3 of The Voice of China without permission from Tencent, which had licensed exclusive streaming rights. The Voice of China (or whatever name it’s going by these days) is one of the most popular programs in China and it generates significant revenue for all of the companies involved with it. Tencent wanted to protect its investment.

Tencent’s victory in the litigation regarding The Voice of China is of a piece with other recent lawsuits regarding enforcement of motion picture copyrights in China, including Disney’s victory over a film that ripped off the anthropomorphic vehicles from Cars, decisions holding private cinema operators liable for exhibiting content without permission, and the recent controversy and lawsuit regarding Wolf Warriors 2. Copyright owners in China no longer have to just grin and bear it.

I hate to say we told you so on this, but we told you so on this Way back in early 2013, in China Intellectual Property Law. A Radio Interview For World Intellectual Property Rights Day, Dan Harris of my firm predicted that this day would come and explained why:

China is a lot better compared to ten years ago. I think very little of that has to do with the WTO. I think that China is better because China is getting wealthier, and because Chinese companies are starting to care more about IP. I am of the view that countries start doing well with IP when its own powerful companies really start caring about it. And I’ve seen this progression happen in Japan, I’ve seen this progression happen in Korea, I’ve read about how this progression happened in the United States. The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China like Haier, like Huawei, like Lenovo — companies that care about their own IP — are going to be able to force China to improve. That’s what’s happening. And as more big companies come to the fore in China, China’s IP is going to continue to improve. And there’s not much that can be done to rush it. In fact, if anything China’s IP is improving nicely. Meaning, it’s improving at least as fast as Korea’s did, at least as fast as Japan’s did, and probably as fast as the US’s did, but the US was a long time ago.

In other words, China — like pretty much most countries, is a lot more likely to do what it perceives to be in its own self interest than to do something just because other countries are telling it that it should/must.

Granted, the legal principles in these cases are straightforward and from what I’ve seen, the facts patterns leave little room for interpretation. When the defendants explain why they weren’t infringing the copyright, they tend to sound like Vanilla Ice explaining why “Ice Ice Baby” wasn’t a blatant copy of “Under Pressure.” (I can’t wait to see who will be the Chinese Robin Thicke and state that they couldn’t possibly be liable for copyright infringement because they were drunk on baijiu throughout production.)

The point is not that Chinese courts are establishing new rights, but that they are enforcing the rights that already exist for copyright owners – and doing so in a meaningful way. Both Chinese and foreign copyright owners are turning to Chinese courts to enforce their rights, and are prevailing. At least with the easy cases.

In future posts, I will discuss what you can and should do to protect and enforce your copyrights in China.

China copyrights works for hireOver the past several years, an increasing amount of creative work has been outsourced to China: everything from special effects for movies to programming for video games to architectural designs for transit-oriented developments. These creative works are protected by copyright, but not always in a way companies expect. And because so much work in China occurs without a legally enforceable contract, once companies realize their IP portfolio is not nearly as robust as they thought, it’s often too late to do anything about it.

As a general rule, the creator of an original work (e.g., a song, movie, or video game) owns the copyright in that work. This is true in the United States and in China and in most every other country in the world. The main exception to the general rule is for “works for hire,” which are works commissioned and paid for by a third party. But this is not a clear-cut exception: it depends on the facts, and it depends on which country you’re in.

In the United States, a company will own the copyright to a “work for hire” by an employee if the work was made within the scope of that employee’s employment. A company will own the copyright to a “work for hire” by an independent contractor if the work was specially ordered or commissioned for use via a signed agreement that specifically states that the work is a work for hire and such work falls into one of nine statutorily defined categories (including motion pictures, translations, tests, and instructional texts). Many commissioned works (e.g., photography, software, and product design) do not fall into one of the statutory categories, and for those the company will need to have a signed contract that explicitly assigns the copyright. Even in the absence of a signed agreement, the company can argue that it has an implied license, but that’s not a great position to be in.

In China, the presumptions are somewhat different. China’s Copyright Law states that an employee will own the copyright to anything they create during the course of employment, except for engineering designs, product designs, maps, and computer software, and other works created mainly with the employer’s resources. For all other works, the employer essentially has a two-year exclusive license to use the copyrighted material, and thereafter a non-exclusive license. If an employer (a WFOE, say) wants to impose a different requirement on its employees, it needs specific language in a signed contract with the employee that assigns all rights in any “work for hire” to the employer. That contract should be in Chinese and governed by Chinese law, and it should be signed at the beginning of employment.

For “independent contractors” (whether individuals or entities), the contractor will own the copyright unless there is a specific agreement between the parties in which the contractor agrees to assign the copyright to the commissioning entity. And yes, this contract ought to be in Chinese and governed by Chinese law also.

This all sounds reasonably straightforward but a vast number of entities – including huge multinationals – still operate in China without proper agreements with their employees, let alone their “independent contractors.” These companies are essentially operating on the honor system, and sooner or later they’re going to pay by losing valuable rights.

china content licensing agreementsIn Netflix finally finds a way into China, CNN’s Sherisse Pham explains how “six months after admitting defeat in its bid to crack China, Netflix has found a way to tap into the vast market.” To summarize, Netflix for years was trying to set itself up in China, so as to be available to viewers in China, just as it is available in “over 190 countries.” To quote from Netflix’s own site, “Netflix is not yet available in China, though the company continues to explore options for providing the service. It also is not available in Crimea, North Korea, or Syria due to U.S. government restrictions on American companies.” Netflix is not available in China because China tightly regulates foreign content and foreign publishing. No surprise there, right?

So how did Netflix manage to all of a sudden make its way into China? By licensing its content to China.

And that makes total sense.

Both here on the blog and in real life with our clients, our China lawyers are always touting the benefits of licensing products, intellectual property, brands, technology and content to China. Licensing deals make sense under many circumstances, but they make particular sense in situations where it is difficult or impossible to get your “widget” into China any other way. In other words, it makes particular sense for content. And because of that, much of my law firm’s China media and entertainment work involves drafting content licensing agreements for written, visual and audio content for magazine and newspaper and book publishers and for television and movie producers and studios. Just by way of an example, virtually all of the China-language editions of foreign magazine titles you see in China are there via licensing. In the typical magazine licensing deals we do, our client, a US or European magazine publisher, will license its magazine’s name and a certain amount of content (to be translated into Chinese) to a Chinese publishing house. Our movie and television and gaming deals are not substantively much different.

In A China IP Reality Check, Part 3, we explained what is typically necessary for a China content licensing agreement to work:

As a preliminary matter — before you license anything to anyone in China — you should register, in China, any of your intellectual property worth litigating over. That means registering not only your English-language trademarks but also the Chinese-language versions of those trademarks. If the Chinese-language versions don’t exist, it’s time to create them. That also means registering copyrights for any meaningful content. For television shows, that means at the very least registering the show bible, scripts, and any produced episodes. It’s true that China is a signatory to the Berne Convention and therefore a valid copyright in the US or Europe is valid in China without registration, but for practical purposes, it’s much easier to enforce a copyright in China if you have registered it in China.

Do not delegate the task of registering your IP in China to your Chinese licensee. The licensee’s interests may not always be aligned with yours.

Once you have registered your IP in China, you should draft an enforceable contract to protect your interests in China as against the Chinese licensee. A contract with the licensee’s Hong Kong affiliate, with disputes resolved by arbitration in Hong Kong (or any other country other than Mainland China), achieves none of these goals. Yet this is what we see again and again from companies who either don’t trust or don’t understand the Chinese court system. The problem is usually not that Chinese law won’t protect foreign content owners. The problem is usually that content owners (and their lawyers) often decline to take advantage of the protection Chinese law offers. They write contracts designed to be unenforceable in China, and then complain about China’s legal system when their contracts prove to be worthless.

A properly drafted China content licensing agreement should address the following issues:

1. Make sure the contracting party on the licensee side is the actual Chinese entity that will be licensing the content, and not a Hong Kong affiliate. As a corollary, choose the right law and the right jurisdiction for your dispute. If you want to sue a Chinese company for breaching your contract by using your IP in China, choose Chinese law and dispute resolution via Chinese courts in the hometown of the Chinese licensee. See China Contracts: Make Them Enforceable Or Don’t Bother and China Contracts. Watching The Jurisdictional Sausage Get Made.

The issue with contracting with a Hong Kong company is not so much that the Hong Kong company may be a shell company with no assets (although that is often the case). Rather, the issue is that any legal resolution in Hong Kong is unlikely to be effective in China. And if you’re licensing content to China, China is where the action is going to be. Hong Kong still has the common law system passed down from its days as a British colony; it favors injunctive relief and disfavors liquidated damages (aka contract damages). China is the opposite. What good is injunctive relief in Hong Kong if you’re trying to get the judgment enforced in China, which disfavors injunctions? You might argue: we will arbitrate in Hong Kong but provide that Chinese law governs. For a variety of reasons that almost never works, particularly if the defendant is a Hong Kong company. Meanwhile, the infringement in China continues.

2. Provide for upfront payment of the license fee in an amount that makes the deal worth it to you even if the contract is terminated early. See China Licensing Agreements: The Extreme Basics. Provide for substantial contract damages for late or non-payment of the license fee, and do not provide the Chinese side with any of your content until it has paid the license fee and the funds are in your bank account.

3. Provide for substantial contract damages for (1) early termination and (2) each instance of infringement. Do not mess around with lengthy provisions about injunctive relief. Unlike the common law systems of the United States, Canada, Great Britain and Australia, contract damages are not disfavored under Chinese law. In fact, use of contract damages is well established in China and favored by statute. On the other hand, though Chinese judges may be legally empowered to issue injunctive orders, they have virtually no power to ensure those injunctions are implemented. There is no Chinese equivalent of the U.S. Marshals Service. For this reason, Chinese judges are hesitant to issue an order they know is likely to be ignored. Instead, they will seek to convert every decision to an order to pay a sum certain in damages. Including a contract damages provision gives a China judge the roadmap. Most importantly, since Chinese companies know well the power of contract damages provisions, your merely having one in your contract greatly increases the odds of your Chinese counter-party abiding by that contract.

4. The contract damage amounts must be a good faith estimate of the actual amount of income that would be lost by the licensor in the event of early termination. These amounts are not guaranteed even if the plaintiff prevails: at trial, the defendant can argue that the contract damage amount is too high and the plaintiff can argue that the amount is too low. The utility of contract damages is that when a plaintiff seeks pre-judgment attachment of assets China’s courts will almost always allow attachment in an amount equal to contract damages if such damage amount is specified in the contract. In contrast, if the contract provides for injunctive relief and monetary damages in an amount to be determined at trial, it is virtually impossible to obtain a writ of attachment. To repeat: Chinese companies do not like putting their assets at risk of being seized and so having a contract damages provision is a great deterrent to that company breaching your China content licensing agreement.

Note also that an arbitration body cannot issue an enforceable assets seizure order and it is also virtually impossible to obtain such a order from a court outside the district where the assets are located. That is why we normally want to sue in the “home town” of the defendant, even though that sounds counter-intuitive to a most U.S. and European lawyers, who have been taught to avoid getting “home-towned.” The Chinese understand the “home town” issue, which is why there is an automatic right of appeal to a higher court in a different town, and also why such appeals are de novo. Home town favoritism is often reversed at the higher court level.

5. Do not rely on the default provisions of Chinese intellectual property law to protect you against your licensee. Chinese IP law and your IP registrations protect against random third-party infringement. If you want protection against your licensee stealing your IP, put it into the contract. Your contract with your licensee is your best chance to control your Chinese licensee and to protect yourself. Take advantage of it by using a contract that actually achieves those things.

6. The license term should be relatively long; say, five years. If the term is too short, then the penalty for early termination becomes irrelevant.

If your Chinese counter-party refuses to sign a contract that addresses the above, you know what they have in mind and you should reconsider whether to do the deal.

For more on China licensing contracts, check out China Licensing Agreements: The Extreme Basics and Nine Tips for China Licensing.

China WFOE complianceWhen I was in high school, a friend got a job at a liquor store, and was often asked to work there by himself. Soon enough, word got around and (human) nature took its course, as the store became extremely popular with a certain segment of the school. My friend hadn’t sought or even anticipated this sort of attention; he was 16 years old and just wanted some extra cash. But when the store got cited for multiple infractions, it came as no surprise to anyone. As my friend observes to this day, “What sort of business owner lets a teenager run a liquor store by himself?”

I was reminded of this story when I read the news that Disney had terminated Meng Dekai, International Special Project Director in China, upon discovering that he had signed numerous unauthorized deals for new Disney projects in provincial cities that few people outside China have ever heard of, including Zhengzhou, Hefei, and Baotou.

Meng had been at this since at least 2009, and in addition to signing deals on behalf of Disney, it came out that Meng had also formed a number of companies with names similar to Disney’s Chinese name and registered a number of trademarks that were similar to those registered by Disney.

It’s unclear what Meng’s master plan was. Yes, Disney knockoffs are rampant in China, notwithstanding the Chinese government’s one-year campaign (tied to the opening of Shanghai Disneyland last year) specifically designed to combat counterfeit Disney products. But it’s one thing to sell knockoff Mickey Mouse backpacks at a mall in Nanchang, where you could clear out in a day if you had to. It’s quite another to build and operate a theme park. Even if Meng received massive kickbacks from the local governments, it’s hard to imagine how he expected to get away with this. It’s also hard to understand why government officials of these lesser-known cities bought the snake oil Meng was selling.

When the China practice group at my firm saw this story, we just shook our heads ruefully, because this is the same problem, writ large, that we see all the time when companies go to China. Once companies have established a presence in China (e.g., a WFOE), a foundational question is: how are they actually going to do business in China, and who will have the authority to act on their behalf?

We regularly conduct audits of firms’ China operations, and the disconnect between the parent company and the WFOE can be shocking. We regularly turn up everything from FCPA violations to employees who cannot be terminated because they were engaged without written contracts to company seals that have been missing for years. And pretty much once a month, we hear from an American or a European company that has just learned (usually via an anonymous email) that one of its employees (usually a trusted senior employee) is secretly operating a competing business on the side. Sometimes though there’s no bad intent on behalf of the Chinese employees; it’s just that there’s no clear oversight and they are operating the “Chinese way.” This is a recipe for disaster, even under the best circumstances. And if you’ve got someone untrustworthy holding the reins in China, things can go from bad to worse in a hurry. See also China Compliance: Don’t Rely on Your China Staff and China Compliance: Don’t Rely on your China Staff, Part II.

Many foreign companies are in a quandary because of personnel or geography or both: they want to have one of “their” people managing operations on the ground, but none of “their” people are willing and/or knowledgeable enough to move to China. And so they end up delegating authority to a Chinese employee who is unprepared and/or unwilling to manage the operations in accordance with the parent company’s wishes.

It’s an awkward situation, and made worse by the quirks of Chinese corporate law, which require every WFOE to decide three things:

  1. the identity of the legal representative, a person with the ability and obligation to act on behalf of the WFOE;
  1. the identity of the general manager, a person who is in charge of the WFOE’s day-to-day operations; and
  1. the location of the company seal, a physical artifact that makes a document legally binding on the WFOE.

The most efficient solution is to appoint a single person as the legal representative and general manager, and have that person be resident in China and in possession of the seal. But this solution places a tremendous amount of authority with a single person, and many foreign companies are understandably reluctant to do so unless they have someone in China that they trust implicitly. As a result, the typical solution is that the legal representative is an employee of the parent company who lives outside China but is tasked with overseeing Chinese operations, the general manager is a Chinese national who lives in China, and the seal is held by a trusted third party in China like an accountant. Yes, it’s as inefficient as it sounds, but it’s usually better than the alternatives. Many of these problems have their genesis when the WFOE is formed without any legal advice on how to handle (and mitigate) these three decisions.

I don’t know what sort of contracts Mr. Meng signed on behalf of Disney, but they better hope he didn’t have access to the company seal and wasn’t the legal representative of the Disney entity he was representing. Right now, this story is just bad publicity, but it may end up costing them millions. And (because every good China Law Blog post ends with a moral) it’s also an instructive story for every company operating in China. How much do you really know about what’s going on in your Chinese office?

China entertainment lawyesSeveral stories came out this past week reporting on the recent failure of Chinese investments in Hollywood. Wanda’s highly publicized purchase of Dick Clark Productions, long rumored to be on the rocks, has fallen through for good, because Wanda paid only $25 million out of the $1 billion purchase price. Paramount’s deal with Huahua Media and Shanghai Film Group is foundering because Paramount hasn’t seen a red cent of the promised $1 billion. And more than a few people doubt whether Recon Holding’s $100 million deal to purchase 51% of Millenium Pictures will close.

Most – okay, all – of the lawyers who deal with China on a regular basis saw this coming from a mile away. Some context:

  1. Hollywood deals fall apart all the time. It’s the nature of the business, and hardly unique to Chinese-invested projects. But those deals have been getting more attention lately because so much of the money coming in is from China.
  1. Chinese investors have developed a not-completely-undeserved reputation as “tourist investors,” particularly when it comes to Hollywood: arriving with great fanfare, taking meetings with players across town, kicking the tires of every studio and production company that may be interested in Chinese investment (which is to say, every studio and production company in Hollywood), suggesting that a deal might be imminent … and then going back to China without agreeing to anything. See China Business Deals: What China Business Deal and China MOU. Like I Really Care.
  1. Because the Chinese yuan is a regulated currency, it’s always been difficult to get money out of China. We’ve been writing about this for a while, and in fact almost exactly one year ago I wrote a post in which I said, “Long story short, we can expect to see more US-China film deals fall through for lack of funding, and it won’t necessarily be the fault of the Chinese company.” Then my colleague Mathew Alderson wrote a three-part series of blog posts during the summer, followed by Dan Harris’ own five-part series in December. Chinese film companies are simply not free to do whatever they want with their own money; the government gets to decide.
  1. Chinese regulators are clamping down on any foreign investment deals, both because of the hundreds of billions of dollars leaving the country as capital flight, and because as a policy matter China wants to discourage “inefficient, uncreative Chinese companies that are simply achieving growth through acquisition.” Add to that increased scrutiny from U.S. politicians, and it’s not exactly Springtime for Renminbi.

Hollywood can bemoan the spigot being turned off, but there wasn’t nearly as much money coming in as was previously thought. It’s still not impossible to get money out of China, but you should say goodbye to buying sprees by Chinese companies snapping up Hollywood assets for no other reason than to convert their currency (cf: the scrapped sale of Voltage Pictures to Chinese metals company Anhui Xinke New Materials).

In light of the new reality, here are some tips on how everyone from studios to production companies to producers should proceed:

  1. Require the Chinese counterparty to pay a nontrivial amount of money upfront, and don’t begin performance until you receive it. If your contract doesn’t pass muster with Chinese regulators, you need to know as soon as possible. Your not receiving the upfront money is a really good sign that the deal itself will never work.
  1. If your deal is with a Chinese company with no presence in the U.S., don’t negotiate or draft it like a typical Hollywood deal. We review entertainment agreements all the time that are in English, governed by California law, and enforceable via arbitration or litigation in Los Angeles – and therefore virtually unenforceable against the Chinese party. You need an agreement written in Chinese, governed by Chinese law, and enforceable in Chinese courts. Do not fall into the trap of believing that because your counterpart Chinese company appears to have a tiny U.S. affiliate company that setting up your dispute for U.S. court resolution will work, because it almost certainly will not.
  1. Instead of fixating on money that your Chinese partner can transfer to the US to finance your slate of American films, start thinking about money that your Chinese partner can spend in China. Perhaps that means a shift toward co-productions in China. It might also mean more deals like the one for Resident Evil: The Final Chapter – ostensibly a buyout, but with profit participation for the production company.
  1. Consider forming a WFOE in China and having it becoming a profit center. China generally has no problem with WFOEs remitting money to their parent companies once all of the WFOE’s taxes have been paid.

It would be a mistake to assume this is just a temporary hiccup and that Chinese companies will be back investing huge amounts in Hollywood in a few months. China still has a ton of money, but for the foreseeable future, the money is staying in China.

China copyright lawsFormally, China’s copyright laws have been in line with those of the United States and other developed countries since China became a signatory to the Berne Convention in 1992 and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2001. But it’s hardly news that you can get a pirated copy of pretty much any movie, CD, or book in China with only a modicum of effort. Years ago you could find bootleg DVDs outside nearly every supermarket and mall in the country. Nowadays it’s more difficult to find such sellers, but not because of China’s efforts to curtail counterfeit goods; it’s because the market has moved to the Internet.

But as China’s homegrown media companies like Baidu, Alibaba, and Tencent continue to pay serious money for the rights to stream tv shows, movies, and other copyrighted material, more lawsuits are being filed in Chinese courts seeking to enforce China’s copyright law, and more official efforts are underway to reduce the amount of pirated material available in China. A (slightly) more subtle form of copyright infringement is still thriving, however: creative works that coopt key elements from copyrighted material, from storylines to characters to music cues and beyond. Television shows in China will make a few slight changes to a copyrighted format and then insist it is an entirely new creation, as with The Voice of China last year. It’s not always clearly a copyright dodge, either; the popular Chinese singing competition I Am a Singer (我是歌手) is an official licensee of a copyrighted  Korean format – or was, until the title and format were altered recently in the midst of China’s unofficial restrictions on Korean content. Presumably it is no longer considered a Korean-content show, which as a side benefit probably means the show cannot be held liable for copyright infringement.

Chinese manufacturers have long excelled at taking the key elements of an existing product and incorporating them into a “new” product. So it’s no surprise that the same thing happens in entertainment. It’s been happening for decades with the most famous story in China, the 16th century novel “Journey to the West,” which has been adapted into a movie or tv series dozens of times. We complain in America about the overwhelming number of sequels and superhero movies, but at least most of them have a different plot. This would be like having one of our greatest stories – you know, like Point Break – remade multiple times in different formats every year for forty years.

It’s important to understand, however, that Chinese law prohibits the unauthorized use of a copyrighted work, or elements thereof, unless such use falls under one of the twelve specific exceptions listed in Article 22 of China’s Copyright Law:

(1) personal use;

(2) “appropriate” quotation in order to introduce, comment on, or explain;

(3) media use to report current events;

(4) republishing or rebroadcasting of another media entity’s story;

(5) publishing or broadcasting a public speech;

(6) translation or reproduction of a scientific work solely for use in teaching or research;

(7) use by a government entity “to a justifiable extent for the purpose of fulfilling its official duties”;

(8) reproduction of a work in its collections by a library, museum, etc. for display or preservation purposes;

(9) a free live performance;

(10) copying, drawing, photographing or video-recording a public artwork;

(11) translation of a Chinese citizen’s work from Mandarin into a Chinese minority language, for distribution in China; and

(12) transliteration of a published work into braille for publication.

The above exceptions are similar to the American concept of “fair use,” a doctrine that allows for unlicensed use of copyrighted material under certain conditions.

Although not always interpreted consistently, China’s fair use exceptions are quite limited. When you’re watching a Chinese reality show and hear a dozen music cues lifted from American pop songs, that’s not fair use. When you’re watching a Chinese television show that seems exactly like Mad About You, that’s not fair use either. That leaves copyright infringement (the former) and legal licensing of a copyrighted format (the latter).

As the value of copyrighted material in China increases, it’s increasingly important to take a broader view of IP protection. Licensing TV shows to China is a big and growing business. Anti-piracy efforts are still important, but it’s even more important to have a properly drafted license agreement. And to take legal action when you find another media company using your copyrighted material. If you don’t protect your own IP, who will?

China IP LawyersA few days ago the invaluable China Film Insider ran a piece about how American cable powerhouse Home Box Office is trying to stop the Wuxi, China-based HBO Studio Restaurant & Bar from using the HBO name without permission. But this movie-themed restaurant has every right to its name. As of 2013, it has owned a trademark registration for “HBO” in Class 43 for restaurant services.

HBO is perhaps emboldened by the recent, well-publicized victories of Donald Trump and Michael Jordan, who triumphed after years attempting to wrest “their” trademarks away from trademark squatters. Or by the judicial interpretation released by the Supreme People’s Court last month describing how China was going to take a stricter stance against trademark squatters.

But even if the Trump and Jordan decisions are harbingers of a new trend in protecting well-known marks, brand owners like HBO need to understand the limits of such rulings. Michael Jordan and Donald Trump only won partial victories. The trademark squatters’ rights were only invalidated with respect to those products or services for which Jordan and Trump were already famous. For Jordan: sporting goods. For Trump: construction services. Notably, the decision by the Trademark Review and Adjudication Board (TRAB) that paved the way for Trump to register “TRUMP” for construction services left intact the trademark squatter’s right to use “TRUMP” for mining and drilling services. Because, presumably, Trump was unable to show that “TRUMP” was well-known for those services.

In the HBO Studio Restaurant matter, Home Box Office faces two big problems. First of all, HBO is not well-known in China in ANY context. Until 2014, when HBO signed a streaming deal with Tencent, the only place you could legally watch HBO in China was in high-end hotels that catered to foreigners. And HBO’s brand awareness in China hasn’t exactly taken off since then. A few months ago, Chinese actor Cao Jun, the star of the HBO Asia original production “Master of the Drunken Fist: Beggar So,” admitted to knowing very little about HBO. Frankly, HBO would have difficulty invalidating ANY trademark on the basis of being a well-known mark in China. But in this case, they have to climb an even steeper hill. They need to prove that the “HBO” name is well-known with respect to restaurant services. And that is almost certainly not going to happen. In the alternative, HBO could argue that the Wuxi restaurant’s trademark was filed in bad faith, but China has been unwilling to invalidate trademarks on this basis except in the case of marks filed by serial trademark squatters and former business partners.

Don’t get me wrong: this restaurant has shamelessly coopted the HBO name in their entertainment-themed Western restaurant, and the restaurant owner’s complaints on its Weibo account about being bullied for no reason by a big American company have the air of protesting too much. But HBO’s strategy is almost certain to fail, because the Wuxi restaurant has superior rights under Chinese trademark law.

It appears HBO has already been down this road before; they had filed an application on March 28, 2014 to cover Class 43 services (including restaurant services), but were rejected for everything but renting cooking equipment, renting drinking fountains, and renting non-theater, non-tv studios. The basis for the rejection is not publicly available, but it is almost certainly because the Wuxi restaurant had filed its trademark application first. I note that on June 6, 2016, HBO filed a new application for Class 43 services, apparently hoping for a different outcome on their second try. I wish them well, but am going to assume that they have a Plan B.

HBO’s better strategy would have been to quietly approach this restaurant and offer to buy the trademark. Maybe HBO already tried that and failed.

I took a quick look and there are dozens of registrations for “HBO” in China, covering all manner of goods and services. And most of them aren’t owned by Home Box Office. That’s a lot of invalidations and appeals to file. Good news for China IP lawyers, but not good news for HBO. Although HBO can take heart from one thing: HBO Studio Restaurant & Bar has a high rating on Dianping, the Chinese version of Yelp.

To reiterate: the recent trend in Chinese trademark jurisprudence to protect well-known marks is heartening, but only extends to those goods or services for which brands are already well-known. If you want to protect your mark for other goods and services, you need to file in a broader range of classes before anyone else.

China media and entertainment lawOur Beijing-based entertainment attorney, Mathew Alderson, will be speaking on a panel at Southwestern Law School in Los Angeles on January 19th. The panel is entitled “China and Hollywood: Distribution and Censorship in a Cross-Pacific Partnership“.

Mathew’s panel is part of the Southwestern Law School’s 14th Annual Media Law Conference, whose theme this year is: Keeping the Beat in a Crazy Year: Blurred Lines and Border Crossings.

Mathew’s panel will focus on how to work within China’s legal system on new productions and on how to deal with the unique challenges China presents when doing productions there. The event will be moderated by Covington’s Nicholas Francescon. The other panelists will be J. Martin Willhite, General Counsel and COO of Legendary Pictures, and Sheri Jeffrey from Hogan Lovells. The Conference is presented by the Biederman Entertainment and Media Law Institute and the Media Law Resource Centre.

If you are interested in China media and entertainment law or media and entertainment law generally (particularly IP law), you should go. The conference runs from 1 pm until 7 pm, with the post-event reception scheduled to last until 8 p.m. Go to this link to register.

We hope to see you there.

China Attorneys

Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

We are often asked questions along the lines of “Where can I go to find out more about ________” When this question relates to Chinese law, we are rarely able to help because our China attorneys do their legal research in Chinese. And when the question is about something other than Chinese law, our China attorneys are rarely able to help because, well, we focus on Chinese law.

But earlier this week I received an email from one of our movie clients asking me if I was aware of where she might be able to find good writings on China’s movie and entertainment industry and, shockingly enough, I was because earlier in the week I had been reading Bridging the Dragon’s website. “Bridging the Dragon is an association connecting European and Chinese film industries” and its website maintains the following really sweet list and amazingly comprehensive list of “Useful Links” relevant to the China movie and entertainment industry:

Asia TV Forum & Market

Asian Film Market

Asian Movie Pulse

Beijing International Film Festival

Box Office Mojo China

China Film Biz

China Film Co-Production Corporation

China Film Insider

The CFI Guide to Film Production in China

China Law Blog — Hey, that’s us!

Chinese Films

Chinese Literature in Translation – Paper Republic

Entgroup

Film Business Asia

HKIFF Society

Hong Kong – Asia Film Financing Forum

SAPPRFT

Screen Asia

Shanghai International Film Festival

Young’s China Business Blog

I am not aware of any China relevant movie/entertainment sites missing from this list, but if you are, please let us all know in a comment below.

China entertainment lawyerChina’s long-awaited Film Promotion Law was enacted by the Standing Committee of the PRC National People’s Congress on November 7, 2016 and is set to take effect on March 1, 2017. We last wrote about the Film Promotion Law when China’s National People’s Congress issued a draft for public comment in November 2015. The newly enacted Law does not differ markedly from the earlier draft. Below is a list of the main differences by reference to Article numbering:

1. Purpose — In addition to promoting the film industry, the purpose of the Law has been broadened to include promoting socialist core values and regulating film market “order”.

2. Streaming — Existing laws applicable to streaming of motion pictures on the Internet, telecommunication networks and radio networks will continue to apply.

5. National development plans — The State Council is to incorporate the development of the film industry into national economic and social development plans.

9. “Socialist core values” for cast & crew — Actors, directors and other professionals in the film industry must not only possess high artistic skill but also abide by socialist core values, social moral standards and professional ethics codes, comply with the law and build an excellent social image.

14. Confirmation of national treatment for official co-pros — This is a reiteration of the existing policy that co-productions meeting the ratio requirements with respect to creation, funding, profit distribution will be treated as motion pictures produced by domestic PRC legal entities.

15. Motion picture production license requirement deleted — Originally, a “film production license” requirement was imposed. Enterprises or organizations that had the appropriate personnel, funds and other resources were expressly entitled to engage in film production activities provided they received approval from the relevant film authorities at the provincial level.

18. Panel of “experts” — Reviews for production and exhibition approval will involve at least five experts. The draft Law did not specify the number of experts. A definition of “expert” is not provided. Experts will be selected from an “expert pool,” having regard to a picture’s theme. Specific measures on expert selection are to be promulgated by the relevant department of the State Council.

19. Second review process — If a picture’s content needs to be changed after a public release license has been obtained the film must go through a second review process. The draft Law provided that a public release license was to have been obtained after the second review process but the new Law deleted this requirement.

22. “Hurtful” or “harmful” business activities banned — Citizens, legal persons, and other organizations may undertake business activities that include the printing, processing, post-production of foreign films and must file with the relevant film administration department at the provincial level. What must be “filed” is not specified. Any business activities in connection with foreign films that contain content that could hurt PRC national dignity, honor and interests, social stability or ethnic unity will not be allowed.

29. “Reasonable arrangement” of screening times — In addition to making sure the total length of films produced by domestic legal persons/organizations is no less than 2/3 of the total length of all of the films released in a given year, movie theaters must also “reasonably arrange” the times and screenings when such films are being released.

31. In-theater anti-piracy — When theater personnel find someone is illegally recording a film, not only can they stop such behavior (as in the draft Law) they can also demand that such content be deleted and can ask those to leave immediately if they refuse to obey.

37. Stronger audit powers — The government is to “strengthen” audits of the use of funds in the film industry.

All up, the law is apparently intended to simplify the regulation of screenplays, film productions and exhibitions and the holding of foreign-related film festivals. There are no fundamental changes to the existing regulatory framework as it affects foreigners. Foreigners will still be prevented from engaging independently in film production in China. Foreigners will still be prevented from engaging in film distribution in China. No mention is made of any lifting of the quota on importing foreign films on a revenue-sharing basis. Still, many of the changes should streamline the official co-production process for foreign producers. There is also now express official recognition of the need for improvements in the system of film finance and the need for tax incentives for local producers.